Tech stocks fell on Monday amid a broader market downturn stemming from renewed US-Iran hostilities and an ongoing debate over artificial intelligence spending and profitability.
The sector faced waves of rotation last week as investors assessed Big Tech companies' expected payoff date for their massive investments in the AI build-out. The concern is not only whether hyperscalers will see huge returns from AI, but when that cash will flow back to them, as some experts have warned that delayed profits could create risks for the broader market.
Meta (META) helped alleviate some of the concerns about its rising capital expenditures on Friday by announcing new revenue streams, including a cloud business that will sell AI compute and the introduction of its Muse Spark 1.1 AI model. The stock rose nearly 6% on Friday but fell on Monday morning.
The next test for the AI trade comes from Taiwan Semiconductor Manufacturing Company (TSM). TSMC, the world's largest chip foundry, reports quarterly results on Thursday. On Monday, TSMC reported that June revenue soared 68% year over year, setting the stage for a blowout report, but any surprise on AI demand to the upside or downside could prove to be a catalyst for shares of its customers — namely Nvidia (NVDA).